Autumn Budget 2025: What insurance professionals need to know about the impact for reinstatement costs

As the dust settles on the 2025 Autumn Budget, the construction sector has been analysing which measures will have the greatest impact on activity and confidence in the years ahead. The implications are also important for the insurance sector.

Reinstatement costs remain under significant pressure, and several announcements in the Budget will influence both the price and availability of labour and the overall capacity of the construction market.

BCIS Executive Director Richard MacLean highlights the key developments that insurance professionals should be aware of.

Labour costs: the dominant driver of reinstatement inflation

While materials cost inflation has cooled markedly over the past two years (and prices remain at historic highs in many cases), labour costs continue to rise due to wage pressures, workforce shrinkage and increased employer burdens.

The Budget confirmed further increases to the National Living Wage and National Minimum Wage from April 2026, including a 4.1% uplift for over-21s and an 8.5% increase for 18-20-year-olds. Apprentice and 16-17-year-old rates will rise by 6%. Even if younger or lower paid workers aren’t engaged directly on reinstatement projects, wage differentials across construction trades tend to be maintained to protect grading structures. This means increases at the lower end cascade upward, placing pressure on rates for mid- and higher-skilled labour that insurers may rely on for reinstatement work.

These developments follow changes already implemented after the previous Budget, with the BCIS Labour Cost Index rising by 2.5% in April 2025 compared with the month before.

The Budget also froze the secondary threshold for employer National Insurance contributions from 2028 to 2031. Because the threshold will not rise with wages, employers will shoulder a higher NI burden in real terms. In parallel, the new cap on annual tax-free pension contributions from 2029 adds further cost complexity. Together, these measures reinforce the structural upward pressure on labour prices.

Labour skills shortages

The ongoing shortage of skilled labour adds a further layer of difficulty. Cost consultants report that finding skilled tradespeople, particularly in M&E and specialist finishing, is becoming increasingly challenging. ONS figures suggest the construction workforce is at a near-25-year low, and while some businesses are struggling to replace retirees or workers leaving the industry, others are choosing not to recruit until market conditions improve. With fewer hands available, work schedules stretch, competition intensifies and subcontractor costs rise.

For insurers, the implications can be significant:

• Persistent cost escalation where specialist trades are limited
• Longer reinstatement timelines, increasing accommodation and business interruption costs
• Greater pricing volatility, especially in labour-intensive trades

The Budget announced free apprenticeship training for under-25s in SMEs (small and medium enterprises). This is welcome support for a sector dominated by smaller firms, but this initiative will take time to translate into usable, experienced labour. In the meantime, the capacity gap in the skills pipeline remains a central driver of reinstatement inflation.

Landfill tax: a major cost escalation avoided

A welcome outcome of the Budget was the government’s decision to pause the proposed convergence of landfill tax rates. Had the lower rate been raised to match the standard rate, disposal costs for concrete, brick, soil and other inert materials would have risen dramatically.

The pause avoids that immediate shock, though future reform remains on the government agenda and should be monitored as a reinstatement cost risk.

Consultation aside, from April 2026 the standard rate will increase by 3.6%, from £126.15 per tonne to £130.75 per tonne, in line with RPI, and the lower rate will more than double from £4.05 per tonne to £8.65 per tonne.

Visibility of upcoming cost burdens

The Budget offered little clarity on several major cost pressures approaching the sector.

Key forthcoming changes include:

• Future Homes Standard (FHS) and Future Buildings Standard (FBS) – there were no Budget updates, despite expectations that the government will confirm transitional arrangements by year-end.
• Building Safety Levy – will apply to higher-risk residential buildings from autumn 2026 under the Building Safety Act 2022, adding cost to qualifying developments.
• Environmental and planning obligations – including biodiversity net gain and nutrient neutrality solutions.
• Delay to the Warm Homes Plan – creating uncertainty for contractors who service both retrofit and reinstatement markets, potentially leading to uneven workloads and pricing fluctuation.

While not all of these will have a direct impact on reinstatement costs, they contribute to a wider landscape of uncertainty around future project viability and delivery for the firms that carry out reinstatement work.

A recent BCIS poll found that more than one-third of respondents (36%), predominantly cost consultants and quantity surveyors, feel they have no visibility of upcoming cost burdens, and a further 33% said they receive very little clarity. Fewer than 2% felt they had adequate foresight.

This lack of forward visibility can also increase risk for insurers, as sums insured may not reflect the higher standards or procedural requirements that will apply when reinstatement actually occurs.

General construction backdrop to reinstatement costs

The Budget offered some stability, including support for planning capacity, apprenticeship funding and the decision not to increase landfill tax, but it did not meaningfully change underlying market pressures. Construction firms continue to navigate rising employment costs, limited workforce capacity, tightening compliance requirements and constrained cash flow. Insolvencies among subcontractors remain elevated, reducing supply-chain resilience and driving up risk premiums.

Rather than delivering stimulus, the Budget effectively maintained the status quo. For contractors, developers and investors, the conditions ahead still require careful navigation.

For insurers, this backdrop reinforces the need to keep rebuild valuations current, ensure sums insured reflect modern compliance standards, and prepare for continued upward pressure on reinstatement costs throughout 2026.

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Autumn Budget 2025

Further commentary on the Budget announcements:

Autumn Budget 2025: Is the government’s 1.5 million new homes target more likely now?

Autumn Budget 2025: Budget blues mustn’t be allowed to undermine skills momentum

Autumn Budget 2025: Budget brings more costs to construction’s doorstep

Autumn Budget 2025: BCIS welcomes government decision on landfill tax reform

Autumn Budget 2025: a bad day for business?

Autumn Budget 2025: is 2026 shaping up to be infrastructure’s year?